I recently read on article here in On Pasture where Kathy wrote that she’s tired of people talking about how little money they make, and that some youngsters think agriculture should be a public service. For years I thought the biggest problem facing animal agriculture is the brain drain. Think about it, generations before us all made a living doing it and now all of a sudden we can’t? Sure we have challenges they didn’t have – thing is, you know what? They had challenges too. Plain and simple this is a 6000+ year old industry, and we are the first generation that has accepted that we can’t make a living, and that’s our own fault.
I am not going to get into how this faulty paradigm became main-stream or who is behind it. Instead I’d rather offer some thoughts on what you can do to change it for yourself.
Understand Marketing
Marketing is a terribly misunderstood concept. I have asked many people what cattle marketing is, and I get some weird ramblings about a variety of things.
Marketing is not haggling with a buyer to get a higher price. That’s just an argument.
Marketing is not trying to leverage a deal to give you an advantage over your customer. That’s just cheating someone and that someone will not be back. Who will you rip off next time?
On that note marketing is not a repeat customer.
Marketing is not trying to get the highest price when you sell. I know people who top the market and still lose money. I know of people who lost money in 2014 selling at record high prices. I thought that was impossible but they managed it.
Marketing is not improving demand. That is advertising.
Marketing is not deciding to sell when you need money. That is just selling. Don’t do this. Many times desperation selling doesn’t end well.
Marketing is not a target weight or date on the calendar. That’s a very unreliable trigger. Just because it worked once for grandpa, the truth is, it probably only worked the once.
Marketing is not doing something like vaccinating or weaning to add value. Value added is only added value if you capture the added value. Most people will miss this mark.
I will get to what marketing is in a bit. First I want to go over a few things. I feel I must define a few words that seem to cause a problem.
Understand Your Place in the Supply Chain
First off, unless you sell small packages of wrapped flesh that go into someone’s freezer you are not selling to the consumer.
Pretend for a second you are a conventional cow/calf operator. You sell your calves right off the cow. A stocker operator or grow yard buys them. Those cattle are then sold to another stocker operator, grow yard, or feedlot. The feedlot finishes them and resells them to the packer. The packer peels the hide off and now we finally have Beef. The packer sells it to a purveyor, who sells it to a retailer, who sells it to the consumer.
That’s a long chain. Here’s the only problem with it. When people fail to profit it gives them plenty of outs to blame instead of taking responsibility for their own actions. The most popular one is to blame the packer. But some blame the feedlot. I even have seen twice in my lifetime where the mainstream blamed the consumer!
I think I made it clear that we are not Beef producers. Just in case we are still confused let me put it another way. Beef is roughly 40% of the critter. If you sell a calf you sell 100% of the calf. You are in fact in the cattle biz. And if you’re still hung up on being a beef producer, just take care of the 100% and the 40% that is Beef will mathematically be included in there.
Back to the chain above. Your future is not in the hands of the consumer. Just because the packer makes windfall profits he’s not going to bid that away on the next week’s kill. If the feedlot makes big profits they are not going to bid it away next time either. You need your customer. You need him to be successful, so he stays in business, and comes back. But your future is in your hands only. I’ll explain.
Sell Then Buy
Here it is, this is the best definition I’ve ever come across from Ann Barnhardt:
Cattle Marketing: is a continuum of inventory liquidation and replacement generating cash flow and profit.
Notice how profit is included in there. Profit is an expense that must be included into your cost structure.
It is a continuum. You must continue the process, to keep your business alive.
Inventory liquidation and cash flow are the sell. Replacement and profit are the buy back. If you are the cow calf guy from above, you sell this year’s calf and are in the process of replacing it with the next one, so you have to produce the next one for less than you sold the previous one for. If you operate by hoping to sell for more than you have in it to make a profit, you are gambling (Betting on the Come). Odds are you will lose, as the attitude and statistics of the mainstream demonstrates. Statistics only show how the majority of people are acting and thinking. They have nothing to do with you
Notice the order of events. Sell then buy.
To give this its fancy accounting name it is a “real time cash flow reckoning.” We first sell, then buy back. You can do this in the same day.
If you buy back in the same day, that would get rid of a lot of risk. Here’s the deal. If you do the traditional buy/sell your exposure to risk is the time you own the cattle. The market could go up or down quite a bit during that time. Doing it this way the transaction isn’t complete until you sell them. If you Sell/buy, your exposure to risk is the time between the sell, and the buy. If you do this quickly the market isn’t going to move very far.
Sell/buy marketing is a skill that is easily and quickly learned, and when executed properly makes profit every time. It is the surest way to capitalize on your time, skills, and inputs. In fact this method is your true hedge in the cash market. Most people don’t know what hedging really is. It is laying off risk.
Sell/buy marketing will also tell you how to manage your inventory, once your inventory is properly identified.
The good news/ bad news is that most people are completely ignorant when it comes to cattle marketing. It’s just good or bad depending on your skill set. The thing is if you want to own a profitable farm, marketing and learning marketing skill has to be a priority.
The number one factor affecting profitability is marketing skill. We’ll talk more about that in upcoming issues of On Pasture.
In the meantime, share your thoughts and questions in the comments section below.
